EV Parts and Components in Mexico

EV Parts and Components Industry in Mexico

• Mexico is the 7th largest manufacturer of automobiles and the 4th largest exporter of auto parts globally
• Mexico is now China's second largest export market for automobiles
• Mexico's location is advantageous for nearshoring activities
• Mexico's proximity to the US market is key, where government incentives encourage electric car adoption.
• The presentation discusses potential positive changes and incentives
• Potential future changes in the US government and leadership are highlighted

Contents

• Goals for reducing CO2 emissions
• Conditions for optimal foreign direct investment (FDI) inflows in the auto parts industry for electric vehicles
• Mexican electric vehicle industry (brands, production, market size)
• Mexican electric vehicle components/parts industry (production by segment, region)
• Current trends in the Mexican EV components and auto parts industry
• Potential of Mexico as a market for electric vehicles
• USMCA rules of origin relevant to components and auto parts (tariffs, regional value, labor content)

Emissions Reductions Goals

• The UN aims to reduce global CO2 emissions by 45% by 2030
• Marcelo Ebrard, Mexican Chancellor, stated that 50% of all domestic car sales will be EVs by 2030
• The EU bans the sale of internal combustion engines by 2035
• China aims for net-zero emissions by 2060

Conditions for a Competitive Export Economy

• A major EV automobile exporter needs a strong industrial infrastructure and production capacity
• A domestic market that isn't overly large to avoid overwhelming production capacity
• Access to export markets through Free Trade Agreements (FTAs)
• A strong supporting industry in the domestic economy , including local component suppliers, and established supply chains
• A business-friendly environment with low labor costs, and social, economic, and political stability

Sales and Production of EVs in Mexico (2019-2022)

• A total of 192,422 electric automobiles were produced in Mexico between 2020-2023
• The presentation provides detailed sales and production data for different types of vehicles (BEV, PHEV, HEV) from 2019-2023
• Electric vehicle sales and production in Mexico have increased substantially in recent years

Growth in EV Sales in Latin America and the Caribbean

• The presentation shows various countries' growth trends in sales for electric and hybrid vehicles using data for 2022
• The graphic depicts the different types and quantities of vehicles sold in various countries

OEM/ Assembly for EV Vehicles in Mexico

• The presentation shows 6 major manufacturers of electric and hybrid vehicles in Mexico
• It states the location and production quantities for each manufacturer in Mexico

More EV Production Projects in Mexico

• Stellantis started producing electric vehicles in August 2024
• Zacua Mexico is a Mexican electric car brand that prioritizes handmade assembly
• W Tech produces tactical vehicles and electric buses
• International Navistar produces the eMV, a 100% electric truck
• MoldEX manufactures electric utility vehicles
• Questum will start producing electric vehicles, and is partnered with FEMSA
• Tesla is expected to have a production facility in Mexico
• LINK Electric Vehicles are projecting electric truck production in Puebla
• OLINA aims to produce 100% domestically designed and sourced EVs

Auto Part Segments

• There are 3 main auto part product segments: Electric components & parts, ICE-related components, and Core Vehicle Components
• The ICE component segment is declining
•  Core Vehicle Component segment levels are stable
• Electric parts and components are expected to show strong growth

Mexico and EV Autoparts Industry

• Mexico is seeing a relocation of EV auto parts manufacturing plants from multiple countries
• $15 billion in investment in EV parts/components is projected in the next few years in Mexico
• Guanajuato, Coahuila, Queretaro, Nuevo Leon, Chihuahua, San Luis Potosi and Estado de Mexico have the highest concentration of vehicles and plants for making auto parts for electric vehicles
• Established ICE autoparts companies are making the transition to EV autoparts

Tier 1, 2 Electromobility and Electrification Components

• Batteries/Capacitors and associated components are increasing
• Electric Drivetrains are growing
• Fuel Cell Systems are increasing
• Cooling and thermal management systems for EVs are increasing
• Power control units (PCU) are increasing
• Other suppliers of components have a high growth rate in the market

Developing the Supply Chain for EVs in Mexico

• There is increasing interdependence between automotive, electronics and telecommunications industries in Mexico
• The market is becoming more suited for hybrid EVs than battery EVs
• Increasing investment in digital infrastructure is necessary
• Mexico must develop skilled labor and expertise in battery management systems, powertrain optimization, battery chemistry, electrical harnesses, and safety systems.

Mexico as a Potential Market for the EV Industry

• Mexico is a growing consumer market suitable for early EV market positioning
• EVs are currently considered a luxury good in Mexico due to a combination of high prices and limited governmental incentives
• Low-cost EVs are growing in popularity in the cab-hailing sector
• A national EV policy is needed in Mexico

Chapter 4 of USDA: Rules of Origin

• Rules of origin in FTAs help prevent benefits from being granted to goods made outside of the agreement
• Criteria based on materials, production, and regional content levels need to be met
• Processes are needed for determining regional value content and regional value content calculations
• Different Regional Value Content (RVC) calculation methods are outlined (transaction, net cost)

USMCA Rules of Origin for the Automotive Industry

• Stricter regional content requirements for vehicles (more U.S. content)
• Increased wage requirements for North American workers involved in the assembly or manufacturing of vehicles
• Increased requirements that raw steel & aluminum be obtained within North America

Product-Specific: Substantial Transformation: Change in Tariff Classification (CTC)

• Substantial transformation changes the unique identification code (e.g., parts vs. finished vehicle)
• Some changes may require modifying the chapter, heading, subheading or period in the harmonized system.

What is a Tariff Classification?

• The Harmonized System, or HS Code, is a global standard for classifying products
• The system is organized into chapters, headings, subheadings, with different levels of product specificity.
• The HS Code is universally used by governments to track imports and exports of goods.

Regional Content Methods (USMCA)

• Two methods to calculate regional content value (RVC):
• Transaction Value Method: Based on the price of the good
• Net Cost Method: Based on the total cost of the good

Regional Value Content Requirements

• The value of RVC requirements for passenger vehicles and light trucks vary depending on the year.
• Requirements for heavy-duty trucks have variations that depend on the year.

New Labor Content Rule

• Specific minimum percentage of North American content by value is required for vehicles
• Workers must earn $16 per hour
• Encourages US investments in vehicle manufacturing

Labor Value Content

• The labor value content is a point system based on high-wage expenses
• Manufacturing and material expenses are included
• High-wage technology spending is also considered in the point system
• High-wage assembly expenses are also included

Labor Value Content (Passenger Vehicles)

• Detailed table showing the percentage of labor value content based on different periods and categories

Labor Value Content (Light Trucks and Heavy Duty Trucks)

• Different requirements for light trucks and heavy duty trucks under USMCA.
• A Labor Value Content percentage of at least 45% is required for the value of a vehicle produced

What Does This Mean?

• Average hourly wage for production workers in North American facilities needs to be at least USD16/hour to be included for calculation of labor value content.
• A significant portion of wages need to be in North America
• High-wage tech component spending is also necessary.
• High-wage assembly is also included